Compensation: What lies beneath

Supervisors, politicians and bankers are immersed in debates on reforming executive pay and bonus architecture at financial services firms. But rather than rely on risk modelling for a solution, should the industry turn to behavioural economists for a new take on an old problem? David Benyon reports

The lookout scans the darkness ahead of the ocean liner. He trains his binoculars to and fro through the gloom, as the ship's engines churn her through the water. He hesitates. Emerging from the fog banks, a small mountain of ice looms across her bow. From the masthead the frozen tip doesn't look too serious. But he cannot see the scale of the iceberg underneath the waves ... Such is the perspective for regulators setting a course for compensation reform. Supervisors are accelerating towards